How should business owners respond when a lender says they need help?

The one message no business owner ever wants to hear from a lender is: “While we’d like to be supportive, we are concerned enough about your business to advise engagement of one of our selected turnaround consultants–who can further assist you in identifying and addressing some of your operation’s critical needs. ”

Let me make this clear: THIS message doesn’t just happen out of the blue. It usually comes after the business has been struggling and losses have been occurring for some period of time (with no signs to the lender that this will change). A business owner may not realize it, but their business is in crisis. In many cases, several iterations of a company’s financial projections, painting a correction of these losses, have been submitted to the lender with actual results significantly missing these projections. Other situations are such that cash is drying up and vendor payments have been stretched.

In any case, a lender wants answers fast and is not in a position to believe or support a going-forward business plan unless it is prepared with the assistance of outside help… a qualified turnaround consultant. When this message comes forward from the lender, an owner’s initial response is often predictable: denial, fear or a combination of both. What the owner does next is very important to the long-term survival of the business.

What a business owner should NOT to do:

Delay. Not taking immediate action on the lender’s message may indicate decision paralysis within the business, which only heightens the lender’s concern.

Resist the lenders message. By this time, the business owner has lost credibility and possesses little leverage to change its lender’s position. The lender is convinced that the business needs third-party assistance, and the owner needs to realize this.

Hire a consultant that is not on the lender’s list. The business now needs the skills of a turnaround consultant that has credibility with the lender. The company’s accounting firm or other type of consultant may not cut it with the lender for the task at hand, and may not have the skills required to rescue the business from its current state.

What a business owner should DO:

Recognize that the business needs assistance, and the lender is willing to support the business provided this assistance is secured. Realize that this is an opportunity to significantly advance the business quickly and avoid failure.

Immediately call the consultants on the lender’s list and arrange interviews. Ask about their background and experience, and be candid about your situation. Worry less about their expertise in your industry and more about their turnaround expertise to help the business out of its current state, and provide credibility in communicating with your lender. Ensure the consulting firm has capacity to take on your situation immediately, and make sure the people you are interviewing with are the ones you will be working with. Engage the consultant you feel most comfortable working with, and advise your lender.

Accept the cost associated with hiring the consultant. Turnaround consultants charge on an hourly basis and require partial payment up front, and they spend a lot of time on site during the beginning phase of their engagement. Believe that this cost is a necessary investment at this time to ensure the long-term survival of your business. The financial benefits to the company of a turnaround consultant may far exceed the cost.

Be prepared to take the consultant’s advice and act quickly to follow through on recommendations.

This can be a difficult and uncomfortable process, but an owner’s initial reactions to the lender’s message is important in securing the lender’s support through a turnaround effort.

Feel free to contact me or comment below if you have further questions about turnaround consulting.